A factoring service is designed to simplify accounts receivable management, by making it possible for the business to get a loan against receivables, based on the credit rating of the person who owes the money to the business. This type of service is an option for any business that has been having trouble collecting on unpaid invoices. Factoring companies are used in many industries and for businesses of all sizes, because they can assist in creating an efficient financial processing framework.
Factoring companies are responsible for helping a business convert accounts receivable into cash. A factoring company, sometimes referred to as accounts receivable financing, will help any business manage their financial resources more effectively and efficiently. The goal is for the business to enhance its collections during day-to-day business operations and convert its existing receivable assets into immediate cash flow. These newly available funds can then pay the necessary bills that are generated from running of a business.
It's important to first understand how accounts receivable funding is different from a standard loan obtained from a bank. Accounts receivable funding, or factoring loans, is not a loan in the common sense, but instead a transfer of assets (receivables in this case) to a third-party. While banks can take months to approve a regular commercial loan, an advance on receivables from the correct agency can help a business convert its own resources to cash within days and provide money for day-to-day operations. The factoring service merely provides the money already owed to the business, in advance of receiving payment from the business' customers. Businesses that take advantage of this kind of service do not have to wade through a bank's red tape in order to receive the cash it needs to keep its bills paid on time.